J&K: Investment in the New and Renewable Energy Sector

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J&K is a region with immense potential for renewable energy projects. At present, the state is fairly untapped in terms of energy utilization and thus venturing into this region would definitely prove to be profitable.

There is an urgent need to shift from utilization based on fossil fuels, which not only are carbon intensive but also are not sustainable. Hence, it is important that the region moves to clean and sustainable energy. The Ministry of New and Renewable Energy (MNRE) is therefore devising master plans for bringing renewable energy projects to J&K where the demand for electricity is increasing with each passing day.

According to the Central Electricity Regulatory Commission (CERC), the share of renewable energy currently is about 4% in total electricity generation in India. CERC has recently passed new regulations, encouraging companies to increase their investment in renewable energy by providing higher returns on their investments. The new rules will be applied equally throughout the country and will benefit J&K as well. The profit on investment in renewable energy will increase by several percentage points, or to be more precise from nineteen to twenty four percent, while the current rate of return is between sixteen to nineteen percent.

Ajay Mathur (Director of Bureau of Energy Efficiency), in a recent interview to IYCN says   “the government should make it mandatory for all states in India to enter into a renewable purchase obligation (RPO) agreement. This agreement would require every state to purchase a fixed per cent of their energy needs from renewable energy plants.”

The J&K region sees a wide gap in the demand and supply of energy and it can only be met through private sector participation and FDI. Considering the region’s vast potential to harness renewable resources and the Central Government’s efforts to promote clean energy, investment in this sector promises high returns.

The J&K state government has been supportive and has encouraged the setting up of power projects in the state in recent years.  Further, it has devised an incentive package for private power producers, including: permission given to private players to set up solar, hydel, wind, and thermal projects of any size in the state; tax holiday for power generation and distribution companies; easy availability of cheap loans, reduction of custom duty for the import of equipment, a favourable debt equity ratio, 100% Foreign Direct Investment permitted, and making competitive bidding mandatory. Hence, we see that large initial investment is highly subsidised by the government which enables investors a good internal rate of return (IRR)

In the Ladakh region of Jammu & Kashmir which faces extremely hard climate, the government under the aegis of MNRE has set aside Rs.500 crore to set up solar and small hydro energy projects which is a much wanted and appreciated move.

The plan includes the development of micro hydel projects aggregating to 23.5 MW capacity, Solar Photovoltaic Power plants, home lighting systems and solar thermal systems such as water heating, solar cookers, solar passive buildings, and solar green houses. The proposed greenhouses in the region would help in increasing the production of green vegetables in the winter season.

According to MNRE sources the Ministry has brought electricity to 50 unelectrified census villages in districts of Doda & Kupwara in J&K through solar home lighting systems. The government intends to install solar home light systems in more unelectrified, villages in Gurez Tehsil. The Ministry has further sanctioned close to 70 more villages for electrification and 145 more villages have been identified for electrification through solar PV Systems. The J&K Bank also intends to set up 200-300 solar powered ATM’s in J&K.

Solar thermal systems such as solar driers, solar water heaters, steam and dish cookers, and solar green houses have been promoted in the state. The Ministry had sanctioned setting up of 10 Akshay Urja shops in the districts of Jammu, Kishtwar, Srinagar, Anantnag, Bandipora, Baramullah, Ganderbal, Shopian, Kupwara and Budgam. Akshay Urja shops not only sell and repair renewable energy and energy saving devices but also provide information about different renewable energy sources.

Solar power systems usually yield an initial return on investment of 7-11%. Solar is also an investment which is inflation-protected because it offsets electricity costs at the current prevailing retail rate. As utility rates increase, with an ever increasing demand for electricity, returns will also increase. In fact, the hot weather in most of India (including J&K) has recently led to a significant increase in electricity prices on the Indian Energy Exchange (IEX) and Power Exchange India (PXI). These are between Rs 6 and Rs 8 per unit. And, in the near future the cost of solar power generation in India is said to come down to Rs 5-6 per kilo watt hour/unit. Solar Power Systems usually have a payback period of between 6-12 years. The payback period will depend on electrical usage, electric rate schedule, and cost of the system. In most cases, larger the electricity bill, the greater the return on investment and the faster the payback. The state needs to implement more incentives like Feed-in-Tariffs to drive the demand for solar energy generation.

Ladakh in J&K gets approximately 320 days of sunshine per year and is one of the best places in the world for solar cooking. The solar cooker market though existent in Ladakh has not been tapped to its full potential. The cost of providing kerosene, LPG or even firewood in Ladakh and other parts of J&K is 20-25% more than what it is in other parts of the country , and high transportation costs is one of the prime reasons for the differential. Therefore, it would prove to be a very good market for corporations that manufacture and distribute solar cookers.

According to the Minister of New and Renewable Energy, Dr. Abdullah, the “Solar Energy Mission” will have provisions for entrepreneurs. The mission will give incentives to investors and reduce the cost for the use of solar panels on a large scale. This gives small and medium sized entrepreneurs an opportunity to enter the market which is fairly untapped. Hence, one can see that the state has great potential for the development of solar energy and the government is giving opportunities to players in this sector to enter the market.

Geographically, the state is in an advantageous position to harness micro hydro electric potential since it is blessed with rivers and river basins with a enormous potential for power generation. The state has a well developed transmission network for supply of power to the national grid as well. But the problem is that a large percentage of electricity generated by Hydel projects in J&K is transmitted to other Northern India states and very less of it is actually used by the people of J&K even though the state requires much more power than it already gets. Around 70% of power is imported / purchased from outside sources.

The rate of return on micro Hydel projects depends on the tariff but it ranges from 16-20%. Government gives preferential tariff to small hydro projects. Besides this, low interest loans from IREDA, no Environment Impact Assessments till 25 MW capacities are other incentives.

These numbers clearly show the great opportunity for players to enter the market and bring more renewable energy projects in the form of micro hydro electric, solar, and biomass derived fuels in the state.

Talking about Hydel projects, it needs to be pointed out that hydel projects should be micro in nature as this reduces to a great extent problems of displacement, river sedimentation, and silt accumulation.

If we do a cost-benefit analysis for a Micro Hydel Project in the state we see that with a gestation period that is not too long, hydel power definitely proves to be economical, beneficial, and most importantly environmental friendly in the long run

Hence, investment firms, power generation, transmission, and distribution companies can play a major role in stopping the environmental degradation in J&K by bringing sustainable energy to the state. The government (central and state) should encourage entrepreneurs to venture into this neglected market by offering them profitable incentive packages and tariffs. Substitution of carbon intensive fuels with clean and green technology in J&K is thus the urgent need of the hour.

Arjun Vachani

[Image courtesy: http://www.flickr.com/photos/question_everything/4051912596/]

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